Q3 2023 QuickLogic Corp Earnings Call
[music].
Ladies and gentlemen, good afternoon at this time I'd like to welcome everyone to quick larger corporations third quarter fiscal 2023 earnings results Conference call.
As a reminder, today's call is being recorded for replay purposes through November 'twenty, one 2023.
Now I would like to turn the conference over to MS. Alison Ziegler of Darrow Associates. Please go ahead.
Thank you operator, and thanks to all of you for joining us our speakers today are Brian Faith, President and Chief Executive Officer, and Elias Nader Senior Vice President and Chief Financial Officer.
As a reminder, some of the comments quick logic makes today are forward looking statements that involve risks and uncertainties, including but not limited to stated expectations relating to revenue from new and mature products statements pertaining to quick logics future performance design activity and its ability to convert new design opportunities into production shipped.
It's timing and market acceptance of its customers' products schedule changes in production start dates that could impact the timing of shipments the company's future evaluation systems broadening the number of our ecosystem partners and expected results and financial expectations for revenue gross margin operating expenses profitability and cash.
Actual results or trends may differ materially from those discussed today for more detailed discussions of the risks uncertainties and assumptions that could result in those differences. Please refer to the risk factors discussed in quick logics. Most recently filed periodic reports with the SEC quick logic assumes no obligation to update any forward looking statements or information.
Which speak as of their respective dates of any new information or future events in today's call. We will be reporting non-GAAP financial measures you may refer to the earnings release, we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. We have also posted an updated financial table on our IR web page that provide.
Current and historical non-GAAP data. Please note quick logic uses its website the company blog corporate Twitter account Facebook page and Linkedin page as channels of distribution of information about its business such information may be deemed material information and quick logic may use these channels to comply with its disclosure obligations under regulation FD.
A copy of the prepared remarks made on today's call will be posted on quick logics IR web page. Shortly after the conclusion of today's earnings call I would now like to turn the call over to Brian go ahead, Brian.
Thank you Alison and good afternoon, everyone and thank you all for joining our third quarter of fiscal 2023.
Actual results conference call.
Q3 revenue of $6 $7 million exceeded the midpoint of our guidance.
Nearly doubling year over year, and increasing 128% sequentially.
This growth was driven by new product sales, which increased by over 170% both sequentially and year over year.
Yeah.
Quick logics set a record for non-GAAP gross profit margin, achieving 78%, which.
Which exceeded the midpoint of the outlook, we shared last quarter.
Driven by strong gross profit in the inherent scalability of our business model.
non-GAAP net income of $1 $8 million was an all time record for quick logic.
Elias will share our outlook in a few minutes.
That project's will set another non-GAAP net profit record in Q4, which will drive positive full year your earnings for fiscal 2023.
The strategic transformation, we initiated in 2020 has enabled us to fully leverage the proprietary IP assets that we have developed.
Over the last 30 years, and executing highly scalable and profitable business model.
When compared to 2020, we expect to grow full year 2023 revenue by over 144%.
non-GAAP gross profit dollars by over 235%.
And with a 2% reduction.
non-GAAP opex improve our operating leverage by nearly 244%.
The bottom line here is our strategic transformation is delivering strong results and I believe the best is yet to come.
Now I'll take a few minutes to highlight the initiatives and contracts that are driving our growth and success.
First we have continued to grow our sales funnel to a record $162 million.
Included in this number are deals for both E. S. P. G. A I P as well as customer specific device development that incorporates our E. S. P. G AIP.
These deals span numerous foundries process technologies and end markets.
In August we were awarded a $15 million second phase of the strategic Rad hard FPGA contract that was initiated in 2022.
Bringing the total awarded so far to $22 million.
The contract has the potential to extend through 2026 with.
With a total potential value of $72 million.
The second phase provided a significant contribution to our rebound in Q3 and expanded the scope of the contract to include a second foundry. In addition to continuing our development efforts with our current foundry partner.
In November 2022.
Sure that we have taped out a new device, where a customer that incorporates our FPGA IP.
Due to strict confidentiality requirements I can't share more details on the specific design win.
We are continuing to do development work with this customer and we are generating revenue from this design each quarter.
We believe this customer could represent tens of millions of dollars in potential device revenues starting in a couple of years.
Yeah.
As mentioned on our previous call contributing to our sales funnel growth includes new government focused E. S. P. G. A I P based opportunities.
Targeting a 12 nanometer process node.
Initial revenue from one contract began in Q1.
Furthermore, we announced the availability of our E. S. P. G. A I P. On the Globalfoundries 12 up your process technology, and we now have multiple new opportunities for this IP totaling several million dollars.
The near 12 nanometer E. S. P. G. A solution is ideal for a wide range of applications, including five G infrastructure automotive electronics.
Aerospace and defense AI ml acceleration and Iot devices.
In late September we announced that a leading technology company chose our E. S. P. G. A I P for global foundries 22 F Dx platform.
We expect to deliver on this initial program this year.
In total during this quarter, we expect to be in development with five different process technologies spanning four different foundries.
This is only possible through the proprietary automation of the australis, IP generator, which lets us create customized versions of our IP within one quarter from contract signing.
Customers are increasingly seeing quick logic is the lowest risk path to a solution that meets their technical requirements development schedule and target costs.
So not so subtle point here is by lowering risk and shortening time to market, we save our customers money and that provides us with a meaningful competitive advantage.
We announced the partnership with <unk>.
Writer of hardware based cryptographic security solutions to provide architects with a path towards securing their assets against the quantum threat.
<unk> them to stay one step ahead in the evolving landscape of cyber threats.
But is that fair as standards based PQ CIP combined with the design flexibility of quick logics E. FPGA platform solution designers can cost effectively meet the rapidly evolving market demands for quantum resilience.
Moving to chip, let's wait.
We recently announced the partnership with your chip to develop low power low cost you see I E. S. P. G HN, let's optimize for edge Iot and AI ml applications.
This opens new possibilities for a wide range of applications. The first chip, let's could be available in early 2025.
Concerning our mobile phone business, our lead customer has digested most of their E. S. S. Three inventory and we expect a slight rebound starting this quarter.
More we have been informed that our E. S. S. Three will be used in new smartphone models that will shift into 2025.
Finally, we are forecasting slight improvements in our display bridge and mature product segments for Q4 and for fiscal 2024.
Yeah.
Moving to sensor mall.
The top tier semiconductor company that has integrated a private label version of a sensor more powered solution to address its customers demand across its broad lineup Microcontrollers has officially launched.
There's private labeling of a sensible toolkit provides significant revenue potential because of the company's large installed customer base and sales force.
As I have noted in the past this is not an exclusive relationship and.
And we will continue to engage with other microcontroller companies.
Before turning the call over to Elias I'd like to share my perspective on the key differentiators that are driving our wins growth and our profitability.
Quick logic has been developing proprietary S PGA IP and delivering high volume commercial FPGA based devices for 30 years.
With this and our australis IP generator that allows us to quickly target our customers chosen foundry and fabrication node, we can lower customer risk and shortened time to market. In addition to providing unique and proprietary IP.
We can also engage with customers at any level.
Providing a simple IP license to supporting development efforts and even though fully managing everything from fabrication to finished goods through our storefront program.
Together these benefits set us apart from the competition and have enabled both our rapid growth and now profitability.
With that let me now turn the call over to Elias for a review of our financial results and I will rejoin for our closing remarks Alliance. Please go ahead.
Thank you, Brian and good afternoon, everyone.
Our performance in Q3 was exceptional.
With revenue more than doubling from last quarter.
Driving the business solidly into the black.
As expected our results benefited from higher E F. P. G IP license.
On professional services revenue as the next phase of the large E. S. P. J contracts started up in the current quarter.
Specifically.
Revenue in Q3 was $6 7 million.
128% from the second quarter.
And up nearly 93% from the third quarter of 2022.
Within our Q3 revenue share.
Sales of new products were approximately $6 1 million.
This compares to $2 2 million last quarter.
173%.
And $2 3 million in the third quarter of 2022 up 171%.
Mature product revenue was approximately 600000.
Compared to 700000 last quarter and $1 2 billion in Q3 last year.
Okay.
non-GAAP gross margin in Q3 was 78%.
Compared with 44, 2% in the second quarter of 2023.
And 49, 8% in the third quarter of 2022.
The increase in gross margins from the second quarter.
Resulting from the higher revenue level.
The change in the mix of deliverables within the FPGA related revenue.
So a higher percentage of professional services.
As well as continued cost controls.
Okay.
non-GAAP operating expenses in Q3, 2023 were approximately $3 3 million.
The Opex for Q3 was slightly above our forecast due to somewhat higher R&D activity given the timing of executing on the large revenue contracts late in the period.
This compares with non-GAAP operating expenses of two 9 million last quarter and $2 5 million in the third quarter a year ago.
non-GAAP net income was $1 8 billion.
So teen cents per share.
A record.
This compares to a non-GAAP net loss of $1 7 million daus.
<unk> 12 cents per share last quarter.
GAAP net loss.
$900000 or seven cents a share.
In the third quarter of fiscal 2022.
Total cash at the.
The end of Q3 was $18 6 million.
Compared with $19 2 million at year end.
In Q3, 'twenty to 'twenty, three we had one customer that accounted for 10% or more of our revenue.
Now moving to our guidance for the fourth quarter on fiscal 'twenty to 'twenty, three which will end on December 31 2023.
Okay.
Revenue guidance for Q4 was approximately $7 4 million.
Plus or minus 10%.
This would lead to revenue growth or growth of approximately 30% for the full year of 2023.
Fourth quarter revenue is expected to be comprised.
Approximately $6 6 billion a few products.
$800000 of Montreal products.
Based on this revenue mix non-GAAP gross margin for the quarter is expected to be approximately 75%.
Plus or minus five percentage points.
We will continue to see margin variances each quarter.
Product mix and volatility in cost of goods sold.
Our non-GAAP operating expenses will be approximately $3 5 million.
Plus or minus 10%.
We believe Opex will remain at three 5 million range with occasional increases to support new program.
Please keep in mind that given our industry.
It may be required to reclassify certain expenses.
<unk>, which is cost of goods sold.
Oh capitalize certain costs at times.
The reclassifications.
Primarily we really related to labor and tooling for our revenue contracts with customers.
Capitalization will reduce opex and also changed the timing for recognizing the corresponding expenses and Cogs.
This may cause variability in our gross margins and operating results.
Yeah.
After interest expense.
Are they in Garland, Texas.
We currently forecast our non-GAAP net income would be approximately $1 4 million.
So 2 million daus or 10 cents to <unk> 14 per share.
Based on roughly $14 1 million shares.
This will allow us to report profitability for the full year.
non-GAAP net income of approximately 1 billion to $1 6 million or eight cents to 12 cents per share based on 13 7 million shares.
The difference between our GAAP and non-GAAP results is related to noncash stock based compensation expenses.
In Q4, we expect this compensation will be approximately $800000.
As a reminder, there will be movements in our stock based compensation during the year I think we are very each quarter based on the timing of grants to employees.
Yeah.
Moving to the balance sheet.
Even though that continued investment.
Supporting the design wins that we have discussed.
Including hiring critical engineering and sales roles.
Point, we expect cash usage to be below $1 million in Q4.
These investments we are making in anticipation of strong growth in 2024.
Timed with the signing of new contracts for design wins.
We are also on track to be cash flow positive for the full year of 2024.
Okay.
With that thank you very much.
And I'll turn the call over to Brian for his closing remarks.
Thank you Elias.
With record non-GAAP net profit Q3 was clearly a historic quarter for quick logic and the stage is set for yet another new record this quarter.
Since transitioning to our core IP business model years ago in 2020.
We expect to grow total revenue by over 144% gross profit dollars by over 235%.
2% reduction.
non-GAAP opex grow our operating leverage by over 244% 2023.
While I am very proud of what we've accomplished so far what excites me is what lies ahead.
The primary drivers for our growth over the last three years have been development contracts looking forward. We believe these will lead to production devices and new opportunities even beyond our sales funnel of $162 million.
We believe these opportunities and others in our sites will fuel our continued growth in 2024 and beyond.
While we will provide our full year outlook for 2024 during our year end conference call.
I believe we are well positioned to grow total revenue by over 30% in.
In a report very solid non-GAAP earnings per share with each quarter contributing to the profitability in 2024.
Following the investments we are making during the second half of 2023 to support anticipated growth in 2024.
We expect to generate positive cash flow for the full year 2024.
With that I wanted to extend my appreciation to the shareholders that have supported our vision and to the team that has enabled these accomplishments. It is a thrill to work with you all.
That completes our prepared remarks, operator, I would now like to open the call for questions.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Please while we poll for questions.
And our first question comes from the line of Richard Shannon with Craig Hallum. Please proceed.
Well great. Thanks, Brian in the last for taking my questions and congratulations on a profitable quarter I'm sure. It's in.
Welcome relief and congratulations on all the hard work it takes to get to this point.
Thanks, Richard Thank you Richard.
You bet I guess more of a tactical question to start off here.
Just looking at the fourth quarter guidance here are pretty close to what you had talked about before which is great to see here I just wanted to get a sense to the degree to which this large government contracts is driving the growth or some other dynamics here within the new product sales that are that are driving that.
Obviously, the large humana contract is a big percent of that revenue.
But there are a couple of other ones that are materially contributing to the revenue growth in this quarter.
I think in the prepared remarks, I alluded to us doing design on several different process technologies in several different tabs.
Most of those would be contributing to revenue in this quarter, some of which are new compared to last quarter and then the <unk>.
Mature products and the sensor products to our smartphone customer are picking back up again.
Third to last quarter.
So I guess the net of that is that all things are up this quarter are forecasted to be up this quarter compared to last quarter.
But the biggest revenue contributors clearly government contract being number one and then a couple of the other IP contracts that we alluded to contributing noteworthy to the revenue in the quarter.
Okay, and maybe to follow up on that last last part there Brian a couple of the newer contracts.
As an example, since you've called this out a couple of times from last year or so this.
Tape out that she referred to a year ago with a customer you can't really tell us all about other than seeing an opportunity for tens of millions of dollars is that one of the contributors and can you allude to what any of those other ones that are.
Driving 70 increaser.
That's definitely contributing the one that was referred to earlier is the product we taped out for.
So that one is definitely contributing in the quarter.
Some development work.
Announced during the last quarter and IP win for 'twenty, two MTX IP core.
That is contributing in the quarter.
And then we have some other smaller ones that are contributing as well that we think will contribute more meaningfully in 2024, even though we're doing some other work for those in this quarter.
Okay perfect. Thanks for that characterization, maybe let's jump into the pipeline here, obviously, a nice increase from $1 40 to $1 62.
I think one of the interesting.
Our comments from last quarter was and got one ask the same question. You asked are there any parts of the pipeline that they wanted the bookings here. So I kind of want to look at the gross adds in the pipeline here quarter on quarter.
Yes gross adds to the pipeline.
The majority of that.
The net increase which is just over 21 $22 million is coming from defense opportunities.
Now in the funnel.
The non defense part of the funnel grew let's say about.
About 10% net from last quarter.
And then.
Factoring in the fact that the.
The large government contracts some of that flowed out from funnel into booked business. When we we've looked at a new contract in August.
So the again the large net increases are primarily defense.
And about 10% increase coming from the nondefense side of the business.
Okay.
Okay.
Fair enough thanks for that.
Alright, let me just add one more bit of color there.
Most of that is IP based opportunity, but there are some device opportunities coming in for that some of which on the defense side are coming from margin type use business.
We're one of only two companies that I'm aware of that have anti shoes.
And we are seeing some some.
Some opportunity for some new opportunity for those coming in so.
Good to see that.
That's what gives us some of the optimism that the mature products for us will rebound.
A rebound back next year and beyond.
Okay.
Brian Thanks for that one.
One thing I wanted to follow up with us and I, probably missed the exact language you gave here, but it sounds like related to in some manner to the to the large government contract you are engaged with the second foundry can help us understand what's going on there.
I'm, not really able to say much about the government contract for obvious reasons.
Other than.
And this new $15 million one that we are executing on now we have added a second foundry to the mix from the first one so we're currently designing for two different foundries.
And hopefully as.
As our press releases take time to approve once they are approved and we can issue those and it will become a little bit more clearer.
We've had is exactly for that second one.
Okay Fair enough look forward to that last question I will jump out of line here.
Understanding you're going to give us some more specific guidance in your view for 2024 in the next conference call.
Talking about some growth of I think 30% year on year as well as being.
Profitable each quarter here, maybe if you can talk a little bit to the.
So the visibility that helps you make that comment so far that's somewhat atypical for.
Well I guess you are not.
A hardware company as much anymore, but I'd love to get a sense of where that visibility and confidence coming from enabling you to make that comment right.
Yes, I think if we divide up the business between device.
IP services on.
On the device side like I was saying that we're starting to see some improvement.
And the bookings and visibility people recovering back from inventory digestion.
Our.
Smartphone business and on the mature business.
Those are long standing relationships with those customers. So I think we're getting some decent visibility from them to make a comment that we think next year will be up and so that will contribute on.
On the IP side.
There is a mix.
These development contracts and sure IP licenses.
And I think that the contracts tend to be.
Months, multi quarter or sometimes even longer contracts and so tomorrow. We're operating under these contracts I think the better visibility we have to what follows beyond the current contract.
Well into 2024 and.
And then on the IP side.
I think that the more customers we engage with.
I wouldn't necessarily say the easier it gets the more understanding we have on how the flow goes with the customer.
Make their decisions we come in I think with more and more data that they need to see to make decisions and so its making the process more understandable more forecastable.
And we're just layering in so many of these into the sales funnel that.
It just increases our confidence that we're going to be able to grow 30% just because at the end of the day. Our sales funnel is a numbers game right more numbers you have the more qualified opportunities tomorrow, its going to flow at the bottom into boat business and so yes.
Now that we're three years into this new business model I think were getting the handle about how those things mature not to a point, where I can give you a number that says I need X in the funnel that generate why two years from now on revenue.
I think I'd ask that we can directionally say, we think next year will be another 30% growth year on the top line for us.
Okay.
Okay perfect. Thanks, Brian.
Brian.
Come on line.
Thanks Richard.
Okay.
And our next question comes from the line of Rick Newton with River short investment Research. Please proceed.
Thank you congratulations Brian.
On a record quarter, it's been a long time coming.
Thank you yeah, that's great. Thanks.
I wanted to ask you a little bit about the.
Second aspect of the Rad hard contract.
For several quarters, you've talked about the contract having the.
$72 million possible.
Revenue flow by 2026.
Does that number include.
Revenue flow from the second foundry.
Does the revenue flowing through and the 70, Joseph $70 million to $72 million. Just include Sky water Who's your foundry partner or does it include more than sky water.
Secondly, the second foundry.
It would include more than just <unk>.
Scott what are foundry, which was the first center that we.
Announced back in August of last year.
Okay.
I just wanted to get a better understanding of that weather sky.
Sky water only was part of the $72 million possibility.
Okay.
And that dovetails into whatever spin said its conference call.
<unk>.
Secondly.
So what youre seeing with your smartphone customer is.
You now have an extra year visibility into one more year of design ins of quick logic products into.
That company's smartphone family is that what youre, saying.
We do we have.
Meetings with them about once a quarter at the management level for planning and visibility purposes.
The net of that is yes, we see the horizon pushing into 2025 now for when it will be.
<unk> III devices, and I think the other aspect of that like I said earlier is just that we were seeing their inventory that they.
They took on earlier in the year being digested to the point, where we're seeing increased backlog and shipments for this quarter.
Last quarter, So I think we've sort of turned the corner on their inventory digestion.
Project into 2024 to be a bigger year revenue perspective wise for smartphones for us than 2023.
Okay.
Thank you for that.
In terms of.
The sales funnel and the quantification of the $162 million.
Does that.
Include any expected product sales from storefronts and the future of your.
Storefront operations.
Or are you just talking basically FPGA IP license and royalties in that funnel.
So on the <unk>.
On the commercial side of the funnel.
There are some device opportunities down there that would be under the storefront.
I would say it's not the.
Not the lion's share of that.
And that would still be within sort of this two year horizon that we have on the sales funnel.
It does not include <unk>.
Anything from a defense storefront perspective, because frankly, if I added that number to it you would probably say, Brian Youre Crazy you can't sell your house.
$500 million now.
So we're keeping those things out of it for now.
Any device storefront is related to either the <unk>.
And if you use devices that we can sell immediately office inventory.
Or some of the commercial device business, we have on Es and Thats at any of the defense storefront stuff.
That's more than a couple of years out is not included in that number for the reasons I just stated.
Okay. So.
Youre not.
We Shouldnt expect defense storefront revenues before 2026.
This soon.
Basically, yes or no.
Got it.
Defense storefront for devices that are getting designed today like this government contract that I agree with you Brian.
We're not going to sell devices until the contracts done from a development perspective, and we said that thats like 2026 onward.
Defense storefront for again standard products that we have today or.
Those types of devices, then, yes, it could happen before that.
Because we already have devices, we're not designing that part just designing them in which is a very different task with the customer.
Okay.
Thanks, Brian I appreciate it I'll jump out of the queue.
Thanks for your answers.
Thanks, Rick.
Yeah.
Thank you.
<unk> and gentlemen, this concludes our question and answer session I would like to turn the call back to management for closing remarks.
Good morning, Thank you all for participating in today's call and for your continued support.
We look forward to speaking when we report our fourth quarter of fiscal 2020 results in late February or some of the conferences. We are attending over the next few months, including in person at the Craig Hallum Alpha Select conference, which is being held on November 15th and 16th 2023.
On December 11th 2023, we will be at the virtual Oppenheimer <unk> Conference and the Needham Conference in early January 2024.
Thanks, again and have a great day. Thank you.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Hum.
Mhm.
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Hum.
Hmm.
Uh-huh.
Yeah.
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